Here’s a step-by-step guide to choosing a term insurance policy that is the ‘best’ for you -
Conduct
Thorough Research –
When you want to buy something, say, an electronic device like a PC, you check out its features
and specifications. But most importantly, you check its manufacturer, quality, etc, before you
trust that product with your money.
In the same way, when you decide to purchase a term plan, you need to weigh the features,
benefits, and costs. But what's even more important is to buy it from a reputable insurance
company. This is crucial because term insurance is a long-term commitment.
Purchasing from a reliable insurer ensures a seamless experience for you during and after
purchase, and for your family during a claim. If you face any issue during the policy purchase or
the policy period, you can discuss it with them and they will do their best to resolve it. A good
insurer will also ensure that the claim process runs smoothly without any hiccups.
You can find out if an insurer is credible or not by checking
their claim settlement ratio (CSR).
Generally the higher the claim settlement ratio, the more reliable the insurance company. You
can also check the reviews of previous customers to gain a better understanding of the insurer’s
services.
Select
Appropriate Cover Amount -
Next, you should decide how much cover amount to buy under the policy. You may rush into
buying a larger cover, say a 1 Crore cover, thinking it would be appropriate for your family.
Today, a 1 Crore cover might seem large, but it may not be sufficient enough to cover your
family's future needs. It is, therefore, crucial to obtain the right level of coverage based on your
family's needs. As a result, you can ensure that your family is financially secure and won't end
up with insufficient funds in the future.
You can calculate the sum assured to cover your family's
needs in two ways.
Calculate manually
Identify the gap between what you will leave behind and what your family actually needs - to
determine the appropriate term cover. You can find the gap by calculating the difference
between -
- How much do you owe? - This includes your short and long-term expenses, long-term
financial goals, loans, etc.
- How much do you own? - This includes the funds you own, your savings,
investments, FDs, etc.
By finding out the difference between these two amounts, you will discover the financial gap
that needs to be filled with term insurance.
Also, make sure to factor in 6-8% inflation, while calculating the cover amount to ensure your
family is adequately covered in the future.
Moreover, if you have existing life insurance, subtract that amount from your current
coverage. Then, purchase the term insurance policy to cover the difference.
Use HLV Calculator
Our Human Life Value (HLV) calculator can also
be used to calculate the cover amount. It
will provide you with the right cover amount based on your answers to a few simple
questions, within 2 minutes.
Choose The
Right Type That Meets Your Needs –
Term insurance plans come in different variants and each of these types is unique, has its own
set of features, and is tailored to meet your specific needs.
- If you want to buy term insurance only to cover your outstanding loans/liabilities, you can
choose the decreasing term plan. Under this option, the sum assured decreases at a
predetermined rate once every 5 years until it reaches a maximum limit of 50% of the
base cover. If you pass away unexpectedly while the plan is in force, the insurer will pay
the decreased sum assured to your family which can be used to settle the loan/liability.
- If you want to add your spouse to your policy, you can opt for a joint life plan. Under this,
both you and your spouse will be covered under a single plan.
- Normally, term insurance doesn’t pay anything back if you outlive the policy term. If
you’re not happy with such a proposition, you can consider buying a Term Return of
Premium or TROP plan. This plan offers a maturity benefit in addition to a death benefit.
So, if you pass away while the policy is active, your nominee will get the death benefit
and if you survive, you will get a maturity benefit - all the premiums you paid (minus the
taxes) will be returned to you.
Aside from these options, many others cater to your specific needs. You can choose the one
that fits your needs the best.
Choose The
Right Premium Payment Term –
You will need to make premium payments to keep the policy
active. Generally, you are required
to pay the premiums until the end of the policy period you choose. This is the regular pay option.
For instance, if you choose a policy period of 30 years, you must pay premiums for 30 years.
However, if you think you may have fluctuating income in the future, you may wish to pay off
your premiums early, so as not to be burdened with premium payments for a very long time.
In this case, you can choose either of these options to pay your premiums -
- The single pay option lets you pay your entire premium in a single go.
- The limited pay option allows you to complete your premium payment obligations in
fewer years. And, the insurance cover and its benefits will remain intact until the policy
period ends.
Choose The
Right Premium Payment Frequency –
You can also choose how frequently you want to pay your term insurance premiums, along
with
the payment term.
In this case, you can choose either of these options to pay your premiums -
- If you can afford to pay large premium amounts every year, you can choose the annual
premium payment option.
- Alternatively, if you find this option burdensome, you can opt for a half-yearly premium
payment option, where you can pay your premiums every six months.
- If you are a salaried employee, you may find smaller premium instalments to be more
convenient. In that case, you can choose a quarterly or monthly premium payment
option.
Note: Regardless of the frequency of premium payments, make sure you have set up an auto-
debit or standing instruction on your bank account. In this way, your premiums will be paid on
time, and your policy will not lapse.
Opt For
Increasing Cover - To Ensure Adequate Coverage –
Your expenses may increase as you age and take on more responsibilities, get married, have
kids, etc. Hence, there may be a constant need to upgrade your cover to keep up with your
growing family's needs. In this case, you can choose the increasing cover option, whereby the
cover amount will increase gradually at specific intervals until it reaches a maximum limit. This
option also helps you counter inflation.
Make Sure
You Choose The Right Insurance Riders –
Term insurance provides basic life coverage. But, if you want to cover risks, such as - accidents,
critical illness diagnosis, accidental disability, etc. - which can threaten the financial stability of
your family, consider adding riders.
Insurance riders are add-on benefits that can be added to your policy at a certain extra
yet
reasonable cost. They make your policy more comprehensive. When choosing an insurer,
always consider one that provides you with multiple rider options.
For example, say you add a waiver of premium on critical illness rider to your term plan. Now, if
you are diagnosed with a serious illness that is listed in the policy document, this rider will waive
all your future policy premiums. This means you can enjoy the cover for the rest of the policy
term - without paying any future premiums. This is why you need to look for the best term plan
with critical illness cover!
Here are some common types of riders available with a term insurance policy -
•Critical illness rider
•Accidental disability rider
•Accidental death benefit rider
•Hospital cash rider
•Surgical care rider
•Waiver of premium on critical illness rider
•Waiver of premium on accidental disability rider